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Mexico to boost minimum wage by 20% in 2023

The pay increase will surely be welcomed by those struggling to make ends meet during record inflation, but experts say it could cause prices to rise even higher in the coming year.

MEXICO CITY (CN) — Minimum wage earners in Mexico will see a significant boost to their paychecks come 2023, the country’s labor secretary announced Thursday. 

“Beginning on Jan. 1 of the coming year the minimum wage will go from 172 pesos per day to 207, an increase of 1,052 pesos per month,” Labor Secretary Luisa María Alcalde said during President Andrés Manuel López Obrador’s morning press conference. 

Calculated as a daily, rather than hourly, amount, the minimum wage in Mexico is currently around $9 USD per workday. The raise will bring that number to the equivalent of $10.80, adding about $55 to a worker’s monthly paycheck. 

The minimum wage along the border with the United States, an area known as the Northern Border Free Zone, is higher than elsewhere in the country. There, it will go from 260 pesos ($13.57) to 312 pesos ($16.29) per day, a monthly increase of 1,584 pesos ($82.68).

“With the increase of the coming year, we will have recovered 90% of purchasing power compared to 2018,” Alcalde said. 

Increased purchasing power, however, may do more economic harm than good, according to Gabriela Siller, director of economic analysis at the financial firm Banco BASE. 

“The minimum wage has to go up, obviously, but raising it this much — even more so when taking into account the 200% rise it has seen since 2018 — what it ends up doing is putting pressure on inflation on one side and incentivizing informal work on the other,” said Siller. 

Mexico has not been immune to the record inflation seen across the globe in 2022. The rate in February was the highest the country had seen for that month in 22 years. 

The 20% bump, Siller said, could get diluted if prices end up being adjusted to meet people’s higher purchasing power. The raise could also create distortions in business hierarchies, leading to the awkward situation of an employee making more than their boss. These distortions could cause the salaries of managers, bosses and other higher-ranking workers to grow as well, putting more upward pressure on inflation. 

“What they should do is incentivize an increase in productivity, and with it incentivize gross fixed investment in Mexico, which is still 11% below the historic maximum level reached in July 2018,” said Siller. “When a wage hike doesn’t come with more productivity, it puts even more pressure on inflation.”

Like in the United States, minimum wage earners are mostly concentrated in industries like retail, food service providers and other sectors that employ hourly workers. Reaction to news of the wage hike among these workers and their employers was mixed on Thursday.

“The raise will definitely benefit me and so many others in Mexico,” said Carlos Ramírez, 23, who works the cash register in a store selling mole, candies and other Oaxacan food products in Mexico City.

Norma Miguel, a 22-year-old barista in a café in the Mexico City neighborhood of Coyoacán, had a skeptical view that more closely aligned with the predictions of Siller, the economist.

“It worries me a little,” she said, adding that she was concerned about its possible effects on inflation. “Obviously it will be good for us, but they have to do it in a balanced way. The price of everything is going to go up.”

Still others showed outright pessimism about Mexico’s economy and its ability to provide workers with a living wage. 

“I already earn more per day than the new minimum wage, but I still don’t make enough to get through to the end of the month,” said Alejandro García, 31, who works in a Mexico City cellphone repair shop. 

Employers expressed trepidation at the added cost as they continue to struggle after the pandemic.

“It could really affect me, because it’s just another expense, but sales remain the same,” said Mariano Ruiz, 61, owner of an Argentinian restaurant in Coyoacán.

For his part, President López Obrador was confident that the wage increase would not send prices flying higher than they have in 2022. 

“We don’t see risks that inflation will shoot up with this raise,” he said in his morning press conference. “We’re going to be paying close attention so that [purchasing power] does not decrease, … but rather that we maintain the 90% increase we’ve seen during our administration.”  

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